Correlation Between Cheesecake Factory and Compass Group

Can any of the company-specific risk be diversified away by investing in both Cheesecake Factory and Compass Group at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cheesecake Factory and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Cheesecake Factory and Compass Group PLC, you can compare the effects of market volatilities on Cheesecake Factory and Compass Group and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cheesecake Factory with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheesecake Factory and Compass Group.

Diversification Opportunities for Cheesecake Factory and Compass Group

0.77

Correlation Coefficient

Cheesecake Factory  Compass Group

Poor diversification

The 3 months correlation between Cheesecake and Compass is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC and Cheesecake Factory is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on The Cheesecake Factory are associated (or correlated) with Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Compass Group go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Compass Group

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 2.14 times more return on investment than Compass Group. However, Cheesecake Factory is 2.14 times more volatile than Compass Group PLC. It trades about 0.19 of its potential returns per unit of risk. Compass Group PLC is currently generating about 0.1 per unit of risk. If you would invest  3,871  in The Cheesecake Factory on September 1, 2024 and sell it today you would earn a total of  1,193  from holding The Cheesecake Factory or generate 30.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Cheesecake Factory  vs.  Compass Group PLC

The Cheesecake Factory

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Compass Group PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Compass Group may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Cheesecake Factory and Compass Group

The main advantage of trading using opposite Cheesecake Factory and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheesecake Factory position performs unexpectedly, Compass Group can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Compass Group will offset losses from the drop in Compass Group's long position.

The idea behind The Cheesecake Factory and Compass Group PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.